Q4 2022 10X Genomics Inc Earnings Call
Thank you for attending today's genetics genomics fourth quarter and full year 2022 earnings Conference call. My name is Bethany and I'll be the moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad.
I'd like to pass the conference over to our host Cathy Crinone with Tenex genomics. Please go ahead. Thank you and good afternoon, everyone earlier today <unk> genomics released financial results for the fourth quarter and full year ended December 31 2022.
You have not received this news release or if you'd like to be added to the Companys distribution list. Please send an E mail to investors at Tenex genomics dotcom and.
An archived webcast of this call will be available on the investor tab of the Companys website connection IMAX dot com for at least 45 days following this call.
Before we begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated and you should not place undue reliance on forward looking statements additional information.
Information regarding these risks uncertainties and factors that could cause results to differ appears in the press release connects genomics issued today and in the documents and reports filed by <unk> genomics from time to time with the Securities and Exchange Commission.
<unk> genomics disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
Joining the call today are Serge <unk>, our CEO and co founder and Justin <unk>, Our Chief Financial Officer.
With that I will now turn the call over to Serge.
Thanks, Catherine good afternoon, and thank you for joining us.
During today's call I'll start with an overview of our performance during the fourth quarter.
Next I will highlight our progress and momentum across our business and the exciting opportunities we have in each of our three platforms. I will then turn the call over to Justin for a more detailed look at our financial results as well as our revenue guidance for 2022.
While 22 had its challenges we ended the year strong with revenue of $56 million.
In the fourth quarter up 9% year over year.
This represents quarter over quarter growth of 19%.
Demonstrating our momentum and focus on execution as we closed out the year.
Total revenue for the year was approximately $516 million up 5% over 2021.
In 2022, we sold more than 1100 instruments surpassed 4500 peer reviewed publications using our products and expanded our intellectual property portfolio to more than 17, <unk> hundred 50 <unk> and.
<unk> thousand applications.
Yeah. The clear highlight of the year was the continued strength and velocity of our innovation engine.
Two pointed to was the biggest and most exciting year of new product in our history as our team delivered catalytic launches in all three platforms.
In chromium, our new products further expanded our broad menu of high performing assets we have.
<unk> chromium flex the new gold standard for single cell gene expression, which we believe has the potential to be transformative to the Columbian franchise.
In addition, we introduced our first sample per product the nuclear isolation kits and opened up new obligations with the launch of beam.
And vision, we launched <unk>, our first special instrument.
<unk> is the foundation of the vision platform going forward transforming the business workflow and outperforming manual methods.
And finally.
We launched the zoom platform, which we believe is the most advanced and Ctrip platform on the market.
The platform includes a versatile and easy to use instruments, a diverse menu of curated customizable and high quality panels and xena explore intuitive software for interactive data visualization.
We're incredibly proud of what our innovation engine delivered in 2022, and we're confident we'll have the commercial scale in the operations infrastructure in place to get everything out of the opportunities you have.
On the commercial front, we're building from a solid foundation with broad reach and a talented team obsessed with customer success.
Last year, we started implementing better commercial processes systems and tools as we prepare for our next phase of growth.
On the operational side, we've made tremendous progress building, our new R&D and manufacturing center here in Pleasanton, which is on track to be completed soon.
This is one of our initiatives to build our global manufacturing network for scale and significant capacity for future growth.
Now, let me share more about our recent progress and pipeline starting with Colombia, the definitive platform for single cell analysis.
Throughout the year, we've seen an ongoing demand for chromium X series instruments as both new and existing customers chose the X series for its high performance expand the capabilities and serious specific assays.
In fact after several consecutive quarters of customers overwhelmingly opting for F series instruments, we made the decision during Q4, the discontinued future sales of our legacy chromium controller.
On the consumable side, our comprehensive portfolio of high performance assays, which are easy to use and scale delivered deep biological insights across a wide range of obligations and satellites.
The performance differentiation and scalability of our consumables portfolio should position us well to drive growth with existing customers welcome new researchers into the tenex ecosystem and accelerate translational and biopharma opportunities.
In Q4, we saw particular strength with our multiline product as researchers continues the trend towards measuring multiple analytes or so.
We also saw increased adoption of our high throughput assays as customers embark on larger scale projects.
We're pleased with the customer response to chromium flex, which we believe will become the new flagship assay for single cell gene expression.
After completing their initial evaluation cycles customers are reordering consistently and starting to adopt larger kits for more scale and lower cost per sample.
We're still very early in this launch, particularly with S&P opportunity.
<unk> is the first and only assay to open up the vast volumes of archival samples for single cell analysis, which should enable much more research, particularly in translational science.
We have now rigorously validated flex across a broad range of different <unk> samples.
<unk> demonstrated protocols to better enable our customers to access was groundbreaking capability.
Also in Q4, we began shipping being beams proprietary screening approach enables researchers to quickly analyze up to millions of BRT cells to determine their antigen binding high blood and high resolution.
We believe the scale resolution on throughput of beam and revolutionize therapeutic discovery, making are of particular interest of pharma and biotech customers.
BMO is a great example of how innovation opens new obligations for single cell analysis.
As the unambiguous leader in single cell, we continued to invest in new product development to unlock more sample types enable larger scale lower the cost of experiments and engage a broader base of researchers.
As the Hebt conference last week, we shared proof of concept data demonstrating how chromium flex can easily scale to up to 10 million cells.
Hundreds of samples in a single experimental drugs.
We believe the data illustrates the power and the long term potential of chromium flex to deliver scale at levels that were inconceivable, just a few years ago.
In addition, this shows how kind of X continues to raise the bar on scalability and ease of use and how our product innovation can drive down the cost of single cell experiments.
Now I'd like to share more about our spatial platforms through our internal investments and acquisitions of spatial transcript on X <unk> and Cortana Telmex has been leading the way in spatial for a decade.
Built incredibly powerful technologies developed foundational intellectual property and have deep experience and customer insights that have been instrumental to our vision and union platforms.
<unk> is the leader and unbiased Batesville discovery. It has been adopted in thousands of labs around the world use of more than 440 publications and preference and has generated by far the largest number of public data sets from any other space with lots of them.
And we're still just getting started.
We made big strides last year with the launch of Cytosorb, which we believe will be a great catalyst to accelerate the platform.
We're pleased with the sustained customer interest and demand for Cytosorb in its second full quarter since launch we're.
We're hearing very positive feedback from customers as they complete their initial runs of services along with its companion assay.
<unk> SSD version two <unk>.
<unk> is increasingly the sample type of choice for visiting users as demand nearly doubled that of fresh frozen in Q4.
We design services to help solve the key challenges our customers have faced with a visit workflow.
Beyond this ease of use the instruments are proposed manual methods, ensuring customers not only have a better experience, but also received better insights.
The services researchers can access more samples and more sample types, including tissue sections previously stored on standard slides.
In addition, we recently released a new protocol, enabling customers to use fresh frozen tissue is on cytosorb.
This new protocol, along with the performance advantages inherent in our <unk> chemistry results in much higher sensitivity than a standard manual fresh frozen asset.
We're continuing to invest in <unk>, new product development with <unk> as the foundation of our pipeline moving forward at a GBT will share more about the future products and capabilities that will be exclusively available on side of it.
We will continue to expand side assess to be compatible with more sample types, including tissue micro arrays.
So working to bring multi omics to the platform with a planned launch of Jean plus protein expression in the first half of 2023.
And we're fully committed to delivering high resolution our team is making tons of exciting progress on visiting HD, which will be offered only on services.
As you may have seen on HPT, the HD data looks exquisite showing aspire to deliver unbiased whole transcriptome discovery across the entire tissue sections of single cell scale resolution.
We've come a long way with this ambitious project and we'll share more when we get closer to launch.
No.
Turning to <unk>, our newly launched platform for incision analysis, and what we believe is the best performing system on the market.
As we shared on Investor day, we delivered our accelerated timeline.
And officially began global commercial shipments in December .
Book instrument shipments in order exceeded our internal expectations in Q4, reflecting the strong customer enthusiasm Virginia.
For our team there is really no better feeling and seeing new products in the hands of researches it was especially rewarding customer shared data from his own veniam runs at <unk> just weeks after we started shipments.
With feedback from our initial customers right now I'm more confident than ever convenience differentiation in performance of damages across a number of fronts.
First <unk> offers excellent sensitivity and specificity because of the unique features of our chemistry zooming deliver high sensitivity even in difficult tissues, ensuring the customers can reliably measure the genes that are interested there.
At the same time, our chemistry insurance high specificity, giving customers confidence that they are not seeing anthem gms ourselves in our samples.
Second resilient over the best workflow from instrument that insight.
We've worked hard to design easy and straightforward sample preparation and assay protocols.
And with a broader world class software capabilities does union, which.
Which is the only platform to feature comprehensive onboard analysis in parallel with the instrument run including cell segmentation and clustering results.
Directly after the run without additional processing results can be easily transferred all of instrument for interpretation using zoom explorer.
Or a wide variety of open source tools.
Our differentiated approach is both flexible and fast and significantly reduces the patient burden on customers.
Third our gene panel strategy developed in collaboration with leading researchers best enables customers to answer their specific research questions.
Our approach combines targeted gene panels optimize by tissue that with the flexibility to add in large numbers of custom James This year, we plan to add several tissue specific and multi tissue ban all star lineup as well as fully custom panels for maximum flexibility.
And finally <unk> delivered best in class throughput enabled through examples across the full technology stack and chemistry hardware and software.
<unk> researchers can analyze the most tissue area a single molecule resolution in the least amount of time.
We are building them to have key performance advantages for launch and for the long term.
<unk> is backed by a comprehensive multi year roadmap and <unk>.
Track record of innovation, giving customers, even more confidence in their investment.
At a GBT will put some of these future capabilities on full display and billing new proof of concept data to demonstrate just how powerful zumiez already and how much more I can enable in the future.
Data showcased some of our key development directions, including multimodal cell boundary stance and framed sell segmentation algorithms multiplex RNA and protein on the same tissue section and isoform mapping SMB detection.
In addition, we shared R&D data from our 5000, plus multi tissue gene panel on seven human F&B and tissues, demonstrating the platform's capability to scale to many thousands of genes.
Also at <unk>, we announced the <unk> catalyst program.
Through the service prospective customers can see proof of concept data on their own samples to support their ground applications and funding request.
While many researchers able to use our provided datasets for this purpose. We believe ASEAN catalyst program will be a great resource for select customers, who require sample specific data.
We can't wait for even more customers to see firsthand why we strongly believe <unk> is the most advanced in Ctrip platform on the market.
Coming off this record setting year of Catalyzing launches across all three platforms, we're fully focused on driving new product adoption, ensuring our customer success and getting the most out of the tremendous opportunities ahead.
At our Investor Day, we're sharing our view of the large opportunities in life Science research and beyond.
When you look at all the ways our platforms are being used the diversity of obligations diversity of analyzed a number of customers. We see that our technologists are replacing much of the conventional toolkit in the life Sciences.
Our tools are revolutionizing, our researchers a drug's biological questions by analyzing how much scientists currently spent pursuing the answers we can estimate the magnitude of our opportunity.
At a high level there are four broad categories of research questions, where single cell and spatial methods are particularly useful.
The first category Allison is the initial homecourt for single cell analysis, yet we're at less than 20% penetrated.
The second category, which entails investigations of genetics mechanisms also see as a meaningful use of our tools, but is less than 10% penetrated.
It's the same in the third category, which encompasses a large opportunity in broader diversity of advanced <unk> biology and.
And similar.
We're barely scratching the surface with a fourth category translational and Biopharma obligations, we have established strong beachheads, but it's still very early relative to the large potential.
Now turning to 2023.
Still a dynamic environment, most geographies have stabilized with exception of China.
We have so much to look forward to and deliver on this year.
2023 will be the first full year on market for several key products, including chromium flex <unk> Xenia.
Our commercial team is fully focused on driving adoption and increased use with new and existing customers alike.
Well, we're coming off the biggest Europe product launches in our history, we're not slowing down our innovation engine is focused on extending our product leadership with new capabilities all three platforms.
Capability of the open up our tools for more samples more research and more customers.
From a commercial and operations perspective, we're continuing to put the pieces in place to get back to our track record of execution and scale to the next phase of growth.
At our core tenets is fundamentally about growth and impact.
It's why since the earliest days of the company, we have invested to build foundations and scale for the long term.
This next phase of growth will be complemented by increased focus on operational excellence and efficient scaling will.
We will be disciplined yet remain bold and ambitious in pursuit of our mission to accelerate the master of biology and announcing withheld.
With that let me turn it over to Justin for more details on our financials.
Thank you Serge total revenue for the three months ended December 31, 2022 was $156 $2 million compared to $143 5 million for the prior year period, representing a 9% increase year over year, and a 19% increase quarter over quarter.
Consumables revenue was $131 6 million.
Which increased 8% over the prior year period.
Instrument revenue was $22 3 million, which increased 15% over the prior year period.
Services revenue was $2 3 million.
Which increased 29% over the prior year period.
Americas revenue for the fourth quarter was $85 $6 million, representing 11% growth over the prior year period.
EMEA revenue for the fourth quarter was $43 million, representing 24% growth over the prior year period.
APAC revenue for the fourth quarter was $27 6 million.
Representing 13% decrease over the prior year period, which was primarily due to COVID-19 disruptions during the quarter.
Turning to the rest of the income statement gross profit for the fourth quarter of 2022 was $119 4 million compared.
Compared to a gross profit of $115 9 million for the prior year.
Gross margin for the fourth quarter was 76% compared to 81% for the fourth quarter of 2021.
The gross margin decrease was driven primarily by the impact of shifting product mix due to newly introduced products.
Total operating expenses for the fourth quarter of 2022 were $142 5 million.
Compared to $131 8 million for the fourth quarter of 2021.
R&D expenses for the fourth quarter of 2022 were $63 6 million compared.
Compared to $61 9 million for the fourth quarter of 2021.
SG&A expenses for the fourth quarter were $78 9 million.
Compared to $69 9 million for the fourth quarter of 2021.
The increase in R&D and SG&A expenses during the quarter were primarily due to increased personnel related costs as we continue to scale the organization over the last year.
Operating loss for the fourth quarter was $23 1 million.
Compared to a loss of $15 8 million for the fourth quarter of 2021.
This included $41 million of stock based compensation for the fourth quarter of 2022 compared to $26 9 million for the fourth quarter of 2021.
Net loss for the period was $17 2 million compared to a net loss of $18 4 million for the fourth quarter of 2021.
Turning to our full year results total revenue for the full year ended December 31, 2022 was $516 4 million compared to $495 million for 2021, representing a 5% increase.
Consumables revenue was $435 6 million and.
An increase of 4% over the prior year.
Instrument revenue was $72 4 million.
An increase of 12% over the prior year.
Services revenue was $8 4 million.
An increase of 16% over the prior year.
As of year end, we have sold a cumulative total of 4630 instruments up 1119 instruments from the end of 2021, representing a 32% increase in cumulative instruments so across all three platforms.
Pull through per instrument for 2022 was $109000 decreasing from $142000 in 2021.
As we discussed at our Investor day due to a number of factors go through per instrument is becoming less relevant for our business today and this will be the last year that we report on this as a key metric.
Our focus is to increase the utilization of our products and drive growth in overall consumer growth strategy.
To assess our performance in these goals. In addition to revenue. We also track the number of reactions sold in a given period.
During 2022, our customers bought over 316000 reactions worked for consumable products. This was up from approximately 310000 reactions in 2021 and represents an increase of 2% year over year.
Looking at our regional results for 2022 revenue for the Americas for the full year was $293 8 million.
Representing 11% growth over the prior year.
EMEA revenue for the full year was $117 1 million.
Representing 8% growth over the prior year.
APAC revenue for the full year was $105 6 million.
Representing a 10% decline over the prior year.
Gross profit for 2022 was $396 million.
Compared to a gross profit of $416 $4 million for 2021.
Gross margin for 2022 was 77% compared to 85% for 2021.
The decrease in gross margin was primarily due to a onetime reversal of $14 $7 million of accrued royalties in 2021.
The impact of shifting product mix with newly introduced products and the impacts of inflation and increased supply chain costs.
Total operating expenses for 2022 were $564 million.
Compared to $468 $7 million for 2021.
The increase in operating expenses was primarily driven by an increase in personnel expenses, including stock based compensation expense and higher costs for facilities and information technology to support operational expansion.
R&D expenses for 2022 were $265 7 million.
Compared to $211 8 million for 2021 the.
The increase was primarily attributable to increased personnel related costs, including stock based compensation expenses laboratory materials supplies expense equipment and facilities costs.
SG&A expenses for 2022 were $298 $3 million.
Compared to 257 $6 billion for the prior year.
The increase was primarily due to increased personnel related costs, including stock based compensation expenses marketing expenses and facilities costs.
Operating loss for 2022 was $167 9 million.
Repair to a loss of $52 $3 million for 2021.
Net loss for 2022 was $166 million.
Compared to a net loss of $58 2 million for 2021.
We ended 2022 with $430 million in cash and cash equivalents and marketable securities net of restricted cash.
Turning to our outlook for 2023, we expect full year revenue to be in the range of $580 million to $600 million.
Representing growth of 12% to 16% over full year 2022.
Looking at Q1 trends, we have seen an impact to bookings in China, and while we believe activity levels. Our recovery. There is typically a lag in reorders. After this disruption as customers work through existing inventory.
This has been reflected in our 2023 annual guidance range.
Moving to gross margin, we expect our gross margin percentage to trend lower from where we exited the year as newly introduced products expand to become a large percentage of overall revenue.
This is particularly the case for the Xenia instrument.
As this is currently a low margin instrument.
Impact on overall company gross margin will be greater as more instruments are placed.
We plan to continue to invest across the business to support our growth and while our rate of head count growth in 2023 will be lower than in 2022, we will still be adding additional head count mainly to support new product development and support.
As our new operations facility in Pleasanton nears completion, we expect a significant reduction in capital expenses in the back half of this year and we will continue to drive towards becoming free cash flow positive by the end of 2023.
We will maintain a disciplined and targeted approach to opex spend throughout the year and expect some increases over 2022 due to increased stock based compensation expense as a result of our previous equity grants to incentivize employees.
The additional head count to support new products.
And increased litigation expenses as we continue to defend our intellectual property.
We look forward to an exciting year and feel well positioned financially and operationally to capitalize on what lies ahead.
At this point I'll turn it back to search.
Thanks, Justin.
I Hope you heard today was our focus on execution and scale as we continue to push the frontier So biology.
We're proud of the portable strength of our innovation engine to deliver new products that fuels and typically research and enable major discoveries across every area of life Sciences.
These discoveries continuously reinforced my conviction that just about all tissue samples will one day be analyzed with single cell resolution at large scale aerospace oil complex.
With our three platforms, we're uniquely positioned to bring those future forward.
We believe our platforms each on their own although far the best in class in their respective fields.
And when he used together our tools provide even more value and reveal the deepest biological insights.
And then look to 'twenty, three I'm more optimistic than ever about our future.
Massive opportunities ahead, and we're in a very strong position to capture them.
We have incredible products broad commercial scale and an amazing team all of which gives me every confidence we're still just getting started.
My sincere thanks to the <unk> team for making this magic happen day in and day out.
Our team's relentless focus on our mission and customers has always been our fundamental strength.
Fedex apart and will continue to propel us well into the future.
With that.
We will now open it up for questions operator.
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Our first question comes from the line of Dan <unk>.
Brennan with Cowen. Please go ahead.
Great. Thank you. Thanks for the question congrats on the quarter guys.
Maybe the first one just on the guide.
<unk>, 16% a bit below where.
Concentrix wired, but currently can make sense, given macro and the comments on kind of that you've made and they experienced during 2020 for your partners would love while you don't kind of break down single cell and spatial could I would love just a little help you can.
Just kind of how we think about.
Those two buckets in particular I think the single cell bucket, which is the bigger one.
Kind of what you're seeing both from academia, and Biopharma and kind of how you incorporated that into the guidance.
Hey, Dan This is Justin I'll take I'll take that one.
As far as our <unk>.
2023 guidance goes.
You're right we've got.
<unk>.
Chromium bucket and a special bucket and if we look on the chromium side, we're looking at probably from.
From the low to mid teens growth year over year and keep in mind. This does include the impact that we've seen so far in China in Q1, which we've called out we think China is probably going to end up around 20% down for Q1.
Year over year.
And thats, probably going to drive Q1.
Somewhere in the low to mid teens percent increase a.
Year over year over Q1 of last year. So that's incorporated in the overall guidance range. So on the chromium side low to mid teens increase on the spatial side.
With the addition of <unk> and the ramp that we've seen so far with with museum.
Looking at about 40% plus increase year over year as the initial quote for the guidance range there.
Yes.
Great. Thanks for that and then and then just maybe as a follow up you said there'd be a lot of questions to pick that apart, but just when we think about profitability.
At the end just in the prepared remarks can you just walk through again, how we.
We're thinking about.
Exiting the year, you said free cash flow positivity I know in the past you've talked about EBITDA positivity, just kind of what can we expect in the fourth quarter of this year and what is that exit rate kind of pretenders. We go beyond 'twenty correct. Thank you.
Yeah, Thanks, Dan so driving towards free cash flow positive by the end of the year.
Still our goal.
We believe that we can do that under multiple different different scenarios. There's many levers that we could pull it if we did see things trending down towards the <unk>.
Lower and as we mentioned before at Investor Day, and then also in the prepared remarks. After we complete our facility here in the first half of the year and get all the payments out for that we are going to see a pretty steep drop off in capex going from the first half of the year.
The second half of the year.
Also keep in mind that this is under our current business is not taken into account any significant nonrecurring events.
But overall, it's important for us.
<unk>.
We're being disciplined in how we're managing our opex, we're being very thoughtful with how we invest right now.
Thank you.
Our next question comes from the line of Dan areas with Stifel. Please go ahead.
Good afternoon, guys. Thanks for the questions.
Serge Justin maybe specifically on <unk> now that systems are making their way into the field here.
The best way to think about contribution specifically for that box just given that it sounds like youre trying to be I think measured early on with the launch but you are also pretty clear about demand being truong so Andy.
Maybe you can sort of help us with sort of frame out your one for that product.
And then maybe Relatedly is there anything that youre thinking about in terms of the impact of the visiting and franchise.
Okay.
So what are we looking at 2023.
I believe that <unk> is likely to be the largest variable in our guidance range and we expect the revenue from any of them to be more skewed towards the instruments rather than consumables this year and.
And we expect the placements to ramp through the year.
We gave we gave the overall thoughts on how just a spatial.
The platforms will contribute overall to the 2023 revenue So museum and zany them together.
Over a 40% increase year over year.
We have mentioned before that this is a complex technology, it's a product that we that we pulled forward quite a bit to launch by the end of by the end of last year and we're really focused right now on the initial placements in early customer success and.
And looking at how those placements are gone and looking at the data the customers themselves have generated off the instruments that we have delivered and installed.
Initial signs are looking good.
And I think we need a little bit more time to see how that continues how that continues to ramp.
At which point, we will assess how quickly we will execute the rest of the installs.
What kind of constraints there might be after that.
Yes, so to your question on the <unk> and genome.
Interaction so.
At this stage the platform exists platforms existing fairly distinct use cases.
Swim lens chosen what kinds of obligations customers will be considering and therefore, obviously quite different sort of <unk>.
<unk> capital requirements.
Requirements.
And run rates.
So we don't see them.
Across kind of lies in each other to significantly extend right now in fact.
A fair amount of synergy between using the platforms.
We do see customers kind of opting into the sort of the full dynamic special.
Ecosystem, and we certainly are eager to encourage that as well.
And so that's how we see this year kind of playing out in the long run of course, it's very hard to predict how the different applications and platforms small sort of overlap interact and support each other.
I don't think anyone quite knows that.
But at this stage I think there.
Gaining a lot of momentum.
And quite complementary out there.
Okay. Thank you for that color there maybe I'll just stay on the new products on the flat flex assay.
Meaningful do you think that can be this year I mean, you had talked about customers needing to see some validation data and just get comfortable with the assay, but it sounds like thats happening now at a fairly decent pace, although I'd love to hear whether you think that's the key.
Case should we think about that being a needle mover. This year and then relatedly is that assay driving chromium X placements forward.
And you just look at the install rate over the last quarter and what Youre looking forward bookings wise.
Yeah. So there are several variables here. So first note that of your initial framing question, Yes, I mean, we're definitely seeing good momentum on flex and especially kind of.
Increasingly good momentum as we look at the last quarter.
And how customers have been scaling we definitely see people kind of doing the initial test coming back with positive results by and large variances yardstick.
Reactions, and then scale into larger experiments and growing more and more the key variables are getting into watches some amount of flex usage is going to be cross sell from our flagship previous launch of assets.
Brian the Firebrand gene expression, so that's number didn't necessarily additive.
Another.
They are able to watch as that.
The flex enables much more streamlined multiplexing, which allows people to drop.
Price per sample and while we're seeing it allowing creating possibilities running new types of experiments that people weren't planning to do before so adding to the central to the ecosystem. It also has the effect of potentially moderating.
Some of the topline because now people were running the same store.
Study they don't have to spend as much we see that as more of a near term.
But in the long run at full conversion, there's tremendous loss system. The amount of it's only going to drive more but we've got to be core.
Cautious.
I mean time.
And.
When do we see.
<unk> has been driving instrument placements certainly that is the feature to keep each other differentiates our differentiated IX serious.
Instruments from the chromium controller.
So it definitely isn't enabling feature.
And.
And so that.
That will create.
More momentum going forward also flux of course opens up as we've always planned on opens up new sample types, new tissues and in particular, <unk> samples, which was something that was not even conceivable for single cell analysis, not that long ago. So there's great potential there its still early a special line. Besides the kind of main <unk>.
<unk> around how the trajectory is going to evolve very we just started really putting full force marketing behind them at the end of last year or so so early to say it is manageable.
Yeah.
Thank you.
Our next question comes from the line of Chaos survive with Morgan Stanley . Please go ahead.
Hey, guys good evening.
Maybe I'll start with one on the guide.
Yeah.
Just given your comments.
Earlier this afternoon on how you think about the.
Three different platforms and the distinct value propositions, you kind of laid out the case for <unk> versus <unk>.
But what do you think about sort of veniam versus potentially chromium and then secondly.
In terms of just the.
Lithium HD launch are you thinking of that as essentially replacing the lithium sales in the model over time, if and when Vizio UHD.
It goes live.
Yes. So the first question is unit versus program.
A couple of things I mean, I think embedded in your question maybe is the question of cannibalization.
Additional reinforcements.
When you look at how it is.
<unk> is used in general traditional end level look at the previous associations like Cardona experiments all of them are used.
<unk> is used chromium being a single cell data as complementary and we see that continuing.
So to a large extent with <unk> as being complementary to the chromium.
We also.
So the question of cannibalization.
Potential for some of them in a potential is probably.
Stronger with like really early technology adopters people who are.
Particular oriented towards new technologies.
And certainly they're going to be kind of single cell or something chromium was something that was super new juniors ago now Jim is going to be the new thing and so there could be potential shift.
And some attention, but keep in mind that the chromium market now is much much larger.
<unk> done that and Theres, a lots of enthusiasm Russell.
Lots of momentum behind project.
That really require that single cell the chromium approach.
And so we do see that the again the tool will exist, while theres going to be some amount of potential cross cannibalization the existence.
Complementary.
<unk> plans as well.
Your question around visit in HD.
And incentives.
We'll see we'll talk more about it when we get closer to launch.
And we certainly have.
Like I said, all along with very high enthusiasm, we're seeing from customers around <unk>.
Huge potential bottlenecks.
Got it and then as a follow up on the <unk> NIM here again.
I know you want it you probably don't want to get into the specifics of the order book, but any color you can sharen just month over month trends through January .
And where do you expect to be in terms of the instrument manufacturing scale up Justin to your point on a relatively complicated instrument.
Existing the year.
And any color you can share on the list price versus discounting versus some of the bundling that you've spoken about in the past across your portfolio in terms of the 'twenty three outlook. Thank you.
Okay.
Yeah.
Hey, Ross. This is this is Jeff and I'll start with.
Let's start with the month to month trends. So as you know, we don't disclose preorders or orders.
Those arent sales.
We're focusing entirely right now on ramping up the operational supply chain.
Manufacturing and.
Continuing to build out the install teams.
Demand is strong we don't see demand as being an issue.
In the near term.
As far as manufacturing overall.
This is the most complex product that we've ever than we've ever built.
No. It was produced on a on a compressed timeline that we pulled forward so.
We're continuing to focus operationally, we see that we see that as a.
As a strength longer term, we're working to move as fast as we can.
But there could be constraints on that side as we move forward.
In the future.
We get.
We get past these initial placements that we're thinking more deliberate about and going towards.
Just more widespread more widespread placements and then what was the third part of your question.
So.
I think we covered all three okay.
Thank you.
Our next question comes from the line of Patrick Donnelly with Citigroup. Please go ahead.
Hey, guys. Thanks for taking the questions.
Just maybe to stick with.
The guidance.
I wanted to get a flavor of kind of how you approached it relative to last year and.
22, you got a few things pop up obviously, the lockdowns in China being the most significant depending of cold chain issues in Europe , you've talked a little bit about this year, you almost have more variables right with medium being being kind of the bigger ones. So I guess, how did you approach. It in terms of the level of conservatism just given again, some things can always come up and particularly around the helium.
So just trying to get a flavor for the conservatism in the guide relative to how you approach things last year the year before.
So overall, our philosophy on guidance hasn't changed it's it's a balanced view.
We're looking at overall with upsides and downsides across all products and all.
Other factors that we're aware of that go into it.
I wouldn't say that this year, the one thing thats a little bit different in formulating that view is the growth rates that we're projecting for <unk>.
Later in the year, we're not.
We're not getting too far ahead of ourselves as far as projecting growth rates that we arent.
<unk> right now.
And so that was the base assumption that was going into planning planning the rest of planning the rest of the year and then as far as just looking at the guidance overall like I mentioned that.
A big portion I think of the variability that we could see in the year is going to be how xenia instruments ramp.
And so we didn't want to get too far ahead of ourselves there either.
And so if there was one part of the guide it would probably be.
A little bit more on the conservative side it would be just what we're assuming for the zenith for Xenia ramp.
As the year progresses, we'll update that as we go forward.
Understood. Okay. That's helpful and then Serge maybe on visiting them HD can you just talk through I guess, what steps are left to get this out to the market.
I know, we were chatting a little bit last week at a GBP about.
Sounded like they were maybe more technical challenges than you expected initially got through a lot of that so maybe just your view the roadmap to commercialization here what steps have already been taken and kind of where what inning. You think we're in if that's the right REIT would ask thank you guys.
Yeah no.
We talked about last time as I mentioned on a GBT was shown some really really exciting data that we are now producing.
Internally, we're working really hard the team is working really hard to get the product to market.
The adjustment from customers were not.
Those major ready to give an update on the timeline or on.
On the state of development, but I do want to emphasize that we're very very strong with them into the platform and are very excited by.
The blood level.
It will enable with our customers.
Thank you.
Our next question comes from the line of Julia Quinn with J P. Morgan. Please go ahead.
Hi, good afternoon.
I have a question on Praluent towns.
Biopharma is at the core of grabbing that data volume scale up on transmission Avi could you give us an update on your progress in packaging Biopharma talent and hire the new chromium instruments that youre, placing or the consumable utilization how much of that is driven by biopharma accounts and what is a reasonable kind of in a medium term target.
But I thinking about.
Yes, so in terms of Biopharma adoption I would say as it kind of as we've talked about it before we.
We see it is we have a strong beachhead.
And our Biopharma.
Progress has been sales into biopharma.
Has been tracking pretty similar to ourselves in academia.
And they still are.
It's we do expect that over time those are.
Huge huge potential within Biopharma applications, and we do expect that the seat realized materialize in the coming years.
Up to now there has been pretty fundamental barriers to adoption within biopharma due to the limitations of our products. Most importantly.
Ability to fix and tissues and needing to work with live lifestyle apples lifestyles.
Im going to address last year and increasingly as we kind of March through the year towards the end of 'twenty two.
We've demonstrated more and more.
The new products, especially in the flux on the chromium side is able to to work with <unk> and in particular, the F&B samples.
We now have a good baseline upfront is abilities on which to build the commercial strategies to drive much more industrial and much more aggressively into biopharma, but I think that's going to be a story going forward.
Sure.
That sort of potential for acceleration in <unk>.
What we have seen.
Got it.
And then a question on sort of the interplay between now and completion.
<unk> filed with the platform we've been hearing from talks about you know customer budget reallocation.
Nationally in a way.
Asia to take advantage of the new capabilities. So just curious what are you feeling based on your customer conversations in terms of the bad debt.
And then in light of that you know do you.
Any any fundamental shifts in the chromium catcon mob going forward, especially with what's going on with Alex.
Yeah.
You can share on that would be great.
Yeah.
Yes.
Question on.
And while we certainly track.
Thank.
The important thing to do to appreciate here is that the different types of customers and certainly the early adopters the technology and the people who want them to be.
The earliest adopters of both the genome and our chromium platform with natural is shipped to the latest kind of technology with extended Atlanta's technology. So when you talk to those kind of customers you would expect and we are hearing that some shift in budgets.
<unk> towards <unk>.
Potentially from chromium, but at the same time the chromium.
Customer base is much larger certainly these days on the initial technology early adopter people, there's lots and lots of managing and biologists who are using chromium, there's lots and lots of them now translational customers that are using chromium and there things are just getting started and there are some applications that people are looking to do specifically.
Chromium. We're currently in is a much much benefit for it.
For many reasons.
Of course, there is applications, where it's always going to be really associated single cell, that's always going to be.
That's the right approach, whether if you're starting with the associated samples when blood when youre working on.
Various covenant oriel screens, crisper screens, where to sell as the fundamental in the end of the experiment, where it's always going to be really based around the chromium approach.
While it is we are seeing some amount of budget shows.
The ASEAN with paint the large majority of.
The Corona franchise is going to keep expanding and keep growing.
Yes.
Thank you.
Our next question comes from the line of Tom makes sense with Canaccord Genuity. Please go ahead.
Hey, guys. Thanks for the questions multi part question on leaving them to start.
It's certainly your first instrument, maybe not maybe other than the connect possibly that kind of has this price point that might start to trigger evaluation from the higher level individuals that institutions. How are you thinking about yourselves kind of already to adjust to that new cell cycle here and close deals.
There's going to be growing pains, especially in light of those changes in 'twenty, two and Jim now, leading and Theres always this.
Initial training period for years, although you have a new platform and when we speak to be this early users. It sounds like they're just entering that true sample processing phase with veniam till like within the guidance. How long do you say that it's going to take for the early adopters like there was like <unk> and <unk>.
Placements to kind of ramp up their usage of the platform.
So maybe you kind of to start with just the general commercial.
Evolution that we've talked about before we have a we have a great foundation of.
Our commercial organization and.
Huge reach really lots of lots of talent in an organization a bunch of leverage that commercial foundation for growth into this year and beyond.
We're adding.
We're adding new tools wedding.
New processes common language.
Reengineering some of our sales incentives and I think theres a lot of a lot of good stuff that's happening.
And we see that that's going to help us throughout.
Certainly not on throughout this year and going forward.
In terms of.
Right.
For the second question.
Okay.
Okay.
Yes, just like the initial training periods pre one <unk> do you think it's going to take a long time to ramp up their usage of the platform look with respect to what's included in the guidance.
Yes, it's always union ramp up and that's something that we're going to have to see like within our initial signs are pretty encouraging people pretty quickly get up to speed and we've seen some very early results from customers running their own samples on our instruments. So that's very encouraging but the very very early right.
Right now so.
And of course, we incorporate all of them.
All of that knowledge and IR.
Explanations.
Yeah.
Thank you.
Our next question comes from the line of Matt <unk> with William Blair. Please go ahead.
Hey, good afternoon.
I just wanted to ask a bit about the cadence of the year.
<unk>.
<unk> typically had about 55% of sales in the back half in a way that hiring has commenced just given your comments on China and the helium instrument ramp maybe help us think about whether there might be a greater skew to the.
The back half of the year this year.
As far as seasonality goes.
Not expecting anything.
Out of the ordinary.
We do expect the seasonality to be similar to the average of the law.
Last couple of years.
Okay, and then search following up on your comments, obviously, the commercial team went through.
Later shipping meaningful infrastructure changes last year, bringing on new tools and kind of structures, maybe it's how do you feel about where the organization with that from a personnel perspective.
And is this more of a year of additional investments or more of a harvesting some of the investments that have ever made.
Yeah.
I think all of US building the company and build an organization, it's always a long term journey we.
We feel good about where we are we're putting a lot of.
New pieces in place.
You know what is going to we're going to keep doing that.
I don't I don't see it doesn't necessarily.
Harvesting as we certainly will take advantage of what we have done and we will keep doing more.
Yeah.
Thank you.
Our next question comes from the line of Michael <unk> with Bank of America. Please go ahead.
Great. Thanks for taking my question guys.
First I wanted to talk about.
Some of the new metrics going forward. For example, you talked about 2% increase in reactions year over year for 2022.
So we do have some familiarity with that metric going forward.
Any sense of what a good bogey that'll be in 2023, just so we can trying to think about reactions versus revenue growth.
And any thoughts on how that pace throughout the year last year sort of did it come in ahead of expectations below expectations, just a little bit more context there.
As far as the guidance for 2023, we're guiding on.
Revenue revenue dollars and.
You gave some of the expected growth rate ranges.
Ross the different platforms.
As far as reactions.
One thing to keep in mind, when you're looking at the change in reactions as a reaction is the physical product that we sell but theres also samples that go into reactions and it's and as you know as.
As customers multiplex more they can get more samples per reaction.
And that's difficult for us to track, we can get a sense of that somewhat anecdotally.
We know that thats been increasing especially over to you.
Over the last year and our newer products.
We released in the past.
<unk> have enabled that and then some of our newer products.
It's built Danielle fundamental to the product as well.
And so I do think that that can be a variable that can impact the.
The number of reactions from year to year.
As far as the price points on it the cost per reaction has been trending up over the last couple of years when youre looking at a visit some reaction compared to a single cell reaction you know all in cost for that division is a little bit more.
But really.
On average within that 300, 1400 dollar range across all products.
Okay, Alright, I appreciate that and then just for the follow up I wanted to tie up some loose ends that you mentioned earlier.
I mean, you talked about for example, just you've talked about low to mid teens on chromium and 40% year over year special but I don't think we have.
And accurate base for 2022, I mean, we have some numbers from your analyst days, but not for the full year. So could you just give us a sense of what the full year.
So on China, you commented on <unk>, but what about the full year for China any thoughts there or maybe some thoughts on your assumptions when do you think China will normalize as the year goes ahead. Thanks.
Sure. So let's start on the 2023 guidance overall our chromium.
Within within our guidance range, we're talking low to mid teens year over year increase for chromium and special.
It's at least 40% so 40% on the lowest end.
And then ramping up.
Inverse to how the chromium increase would be would be ramping up so not 40%, but more than 40%.
Our special as far as looking at Q4.
We did give you information on Q3 at the analyst day, but I'm looking at Q4 spatial was about the same percent of revenue in Q4 than it was in Q3.
So the same percentage of that roughly the same percentage at a higher <unk>.
Revenue base.
And then.
As far as how things, we expect things to progress for the rest of the year.
Especially with China as I mentioned earlier that we are seeing impacts to China right now and we do think that China is going to be roughly somewhere in the ballpark of 20% down year over year, what we are seeing and hearing right now.
From our team in China is that activity levels are looking good and activity levels are recovering. We're also hearing that inventory levels at the service providers and the distributors are higher as they were coming off of this level of disruption reported activity came back up there's now some inventory to work through.
So we see that having an impact.
Q1, our expected impact in Q1.
Also expecting.
Somewhat of an impact in Q2, although not as great as Q1.
And then a moderate improvement throughout the rest of the year.
So if we see it get better then.
A moderate improvement.
Update that at that time.
Uh huh.
Thank you.
Our next question comes from the line of Matthew <unk> with Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. Just one maybe just on the first one just on gross margin I know you mentioned you expect to be below the level of last year and a lot of it has to do with the new product introductions, how should we think about it over the cadence of the year I mean should we think about it as sort of a lower level consistently throughout the year or is it going to be some level of.
Change in cadence of gross margin as we move through the year.
Hey, Matt when Youre thinking about gross margins for this year. The biggest driver on gross margin is going to be what percent of overall revenue is veniam instruments. So <unk> instrument itself, it's a low margin instrument.
For reasons that I've gone over before the consumables, though are more comparable to the consumables that we currently sell.
So there is going to be an impact throughout this year I think it's going to continue to trend lower.
Throughout the year.
As we increase our genius placements and also the percent of the overall revenue increases I do think that there will be partial offsets as the consumables revenue stream on those continues to ramp up as well.
But as far as how the consumables ramp compares to the instrument ramp.
It's too early to make a call on that so I think the best assumption is just that it's going to continue to trend lower throughout the year and it's going to flex. According to the number of overall placements.
Got it that's helpful. And then just on the commercial strategy you had mentioned in your prepared comments about changes you've made I know you hired Jim.
Last year, but any more detail that you can provide just given that you're now a multi product company.
<unk> to scale as well as grow could you maybe talk about some of the changes that you made or some of the things you might be doing differently. This year as youre dealing with multiple products in the marketplace.
Yes, but nonetheless, the complexity of our platform some products has increased and [noise].
Substantial, especially with introduction of <unk>, which is the hardest to kind of the biggest instrument the most complex instrument.
Before that.
That said.
As we also talked about before the products are highly complementary and theres a huge overlap of huge.
Overlap of customers and a huge overlap in terms of being able to use them in complementary ways. So that's something we're definitely leading into and certainly taking advantage of our entire like Salesforce a commercial for us too.
Two to help the different platforms supporting each other and reinforce the unusual advantages.
We're also.
Recognizing that some of them require a bit more focus we are investing in.
And some amount of stress.
Specialization.
Certainly on the sales side or the marketing side on the support side too, especially due to help with our resilient.
Yes.
Thank you.
Our next question comes from the line of Justin Bowers with Deutsche Bank. Please go ahead.
Hi, good afternoon.
During the prepared remarks, you talked about the next phase of growth and was hoping that you could help characterize that for us a little more and then thinking about.
The next two or three years.
Is that is the growth rate we're seeing.
And.
And the guidance for this year.
Kind of reflective.
The outlook for the next two or three years.
So in terms of kind of how we look at the next several years and the next phase of growth here a lot of us.
Youre going to back to a previous question come from that.
The completion of our product lineup has increased tremendously in the products and different milestones are somewhat different.
Stages of market penetration.
Given.
<unk> is just getting launched so I think there's tons and tons of excitement in the marketplace right now for a.
For the platform as it currently stands in Thailand.
As we add more capabilities to the platform. So I think it's going to be a huge driver.
Market demand, especially as we look over the next several years we're.
We're making big investments in that division franchise has been around for a few years and it took us some amount of time to build out the full set of capabilities and especially with the launch.
The launch of Santos has not lost its really set up for an acceleration in growth and so we're feeling particularly.
People are excited and we see a lot of restaurants with customers there and we.
What I was going to be investing to lean into that acceleration and then on the chromium side, we've grown a lot.
Over the last several years and I think we're at the point where.
There is a lot of potential to grow into new kinds of applications and new kinds of areas move emphasized the translational research in special when that capability is now I think there is huge.
Huge potential there there is a.
There's lots of opportunities in Biopharma and there is a general sense that the single cell.
And in the current platform is really.
<unk> is in good place now to grow much more mainstream mainstream biology and.
So that's our goal in all of these are all of these sort of vectors require more scale and more intentional.
And oftentimes specialized approach as to how we go to market small reserve against some of our investing.
And scaling the company.
While scaling our approaches leveraging what we have done so far to drive the Mexican peso.
And just a quick follow up in terms of head count additions it sounded like those were.
Concentrated in R&D and product development can you can you give us a sense of the mix there and then just on China is there.
Or are some of your partners over there starting to see tenders from fraud.
The stimulus package that was.
Introduced last year are passed last year.
As far as head count as far as headcount goes when we're looking at increases.
In 2023.
It's mostly the.
Support new products, and where we're looking at minimal increases 2023 over 2022.
Our hiring some.
Zions specialists throughout the year to help augment the.
<unk> and support the sales reps.
And then we're also taking.
Taking over support and installations of all products internally, whereas we used to do that through a third party.
So.
The increases are coming mainly from those two areas.
And then as far as as far as.
We haven't heard anything.
Okay.
Our last question comes from the line.
John <unk> with UBS. Please go ahead.
Thanks for taking my question, if I could ask two here I guess first with Europe any color. There on just how you see the Europe market playing out for the year and maybe the dynamics around macro pressures there.
And so Europe Europe had a solid you ever had a solid quarter.
This past quarter and I think there's probably a number of reasons for that I think.
Looking at the year over year compare.
It was a favorable compare going back to 2021.
The end of 2021, when the auto credit.
<unk> rose.
That impact in Europe during the last two weeks during the last two weeks of the quarter I think operationally we had some challenges in the middle part of the year that I believe that we have.
Improved and mostly recovered from going.
Going into going into Q4, but it definitely seems like.
Things in Europe had been more stable than the trends over this last quarter have definitely been.
Encouraging one thing to add as well, though in this this impacts Europe and other.
Geographies as well as coming into the beginning of 2023, we executed the largest.
Annual price increase that we've ever done and so I do believe that there.
It has been some there's always some pull forward when you have a price increase but this being the largest one that we've done.
Going from Q4 into Q1, I do think that it was likely a little bit more than we've seen in the past.
And it's a little bit too early right now to tell how much of that was pull forward.
How much of that was regular demand and so I think we need a few more data points before we start calling a new trend.
In particular in Europe , but just the worldwide as well.
Thanks, My follow up was going to be on pricing, but maybe just to kind of think that.
High level question here I guess.
Now prestige beauty in the conversation from your customers I guess, where do you see the most excitement coming when you look through the different platforms from here any shift in those dynamics there between special and single cell.
Yeah.
Yeah. Good question I would actually like trying to try and wrangler ourselves and it's challenging.
There's tons and tons of excitement coming out of the GBT certainly on the single cell side, we showed how the scaling potential of the common platform.
It's pretty astounding with 10 million cell experiments.
All kinds of data that you didn't get from a single sample.
And we showed them on a medium size is we shouldnt be that means do you data in parallel there's huge residential side assistant and wasn't some labeling.
Hearing people that you'll have more a lot more demand and then the capacity that's running at this stage and we are and also Liam again, we showed that the features the great features of the instrument platform itself right now really really clean data ICM facility high specificity. It has the best.
The best throughput.
In the market by far has great workflow really it really is the missing as a firm which has gotten tons of rent loss from people and then I think GBT in particular, we talked about also about long term development directions on those also resonated really strong with people whether its plex levels.
In the future improvements due to.
To sell segmentation or like really excitingly, all the different the different kinds of analyses you can actually analyze xenial using our chemistry that you can't.
Really any other approach being able to look at the individual single nucleotide variance in the <unk> samples in the ISO forms so lots and lots of excitement on both are on like what the platforms to do right now in the sort of the direction that they are going and that's very hard to bed and in particular one is.
As the winter.
Thank you.
That concludes today's Tenex genomics fourth quarter and full year 2022 earnings conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.